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Service Trends by Barb Levisay, Owner, Marketing for Partners

Microsoft Floods Partners with Real Data on Cloud Business Models

Taking an important step beyond anecdotal evidence, Microsoft's Worldwide Partner Group (WPG) has created several cloud profitability tools based on substantive partner research. An overdue investment in empirical research, the Microsoft Cloud Profitability Scenarios and Financial Models provide insight into the real world of partner experiences with cloud business models.

The Microsoft Cloud Profitability Scenarios project is an outgrowth of partner interest in the Microsoft-sponsored IDC research released last year in the "Successful Cloud Partners 2.0" e-book. Jen Sieger, senior business strategy analyst for WPG, said, "Last year's IDC e-book had a lot of good insights on the business models but partners wanted to know how they could pursue those models with Microsoft."

The research supporting the Microsoft Cloud Profitability Scenarios was conducted in two parts. "We surveyed 1,260 partners worldwide, speaking to them about the scenarios and the service revenue they were attaining with those scenarios," Sieger explained. "We augmented the survey by conducting 66 in-depth interviews with our top cloud partners."

For each scenario, the 77-page deck includes descriptions of the types of project services, managed services and packaged intellectual property (IP) partners are currently offering based on the data gathered through the survey and the in-depth conversations. Average revenue and margins realized by partners for each level of service are also included.

One standout finding from the survey is that 48 percent of partners say they are already combining project services, managed services and IP through "packaged service" offerings. "I know that our partner ecosystem is evolving quickly, but that level of transformation was surprising and encouraging," Sieger said. "The idea that partners are adding their own IP to the mix is really good."

Packaging IP to add to cloud-based services, which has been a consistent theme from Microsoft, appears to be validated through the survey. "According to our survey, partners applying that model are achieving 65 percent gross margin on services," Sieger added. "There is a healthy ecosystem of partners who are successfully transforming their business models."

Financial Models
In addition to the scenario research decks, Sieger's team developed Excel-based Financial Models that partners can use to evaluate service options for their own practices. There are four models available:

"We have received a lot of good feedback on the financial models," Sieger said. "They help partners see how a new practice with Microsoft would impact their business."

Quantifying cloud business models is particularly important in the current channel environment, according to Sieger. "There is a lot of merger and acquisition activity in the channel right now," Sieger said. "The impact of recurring revenue on the valuation of a partner's business is significant. The financial models will help them build out a business case."

Sieger said that this year's findings and tools are just the starting point. During fiscal year 2016, Microsoft will be building out a broader set of scenarios to reflect the variety of ways partners are building on Microsoft online services.

"Our hope is that these resources will provide partners with more insight into the opportunities across the Microsoft online stack," Sieger added. "In the cloud, it's all about customers for life -- all the ways that partners can serve their customers and increase profitability. These resources allow partners to learn from one another." For more on Sieger's perspective, see her blog post on the profitability modeling models.

How are you building profitability with new business models? Add a comment below or send me an e-mail and let's share your story.